Should businesses focus on Sustainability, or ESG criteria? Energy Partners’ Johan Durand makes the case that, if companies want to thrive in today’s economic landscape, they must integrate both.
In the dynamic world of business, there often arises a critical question: Should a company focus on Sustainability, or should they focus on Environmental, Social and Governance (ESG) criteria? For some, the dilemma extends to whether either of these initiatives are even beneficial at all.
However, given the global importance of both, understanding their distinct roles and interconnections is critical for companies aiming to thrive in the modern economic landscape and maintain organisational sustainability.
What is sustainability?
Sustainability in business is a broad scope. It refers to the ability and practices of a company to optimally manage economic, social and environmental resources to ensure long-term viability.
This includes initiatives that, for example, decrease emissions, promote employee development and contribute positively to the community in which the business operates, and is supported by the necessary policies and procedures that fundamentally govern an organisation’s actions, behaviour and decision-making.
What is ESG?
ESG, on the other hand, provides a much more granular view, emphasising specific measurable criteria as they relate to environmental impact, social responsibility and governance standards.
These metrics are crucial for investors and stakeholders who require detailed, quantifiable data to evaluate a business’ ethical and sustainability performance, to critically assess its understanding of its ESG-related risks, opportunities and impacts, and to determine future financial performance.
The balancing act
Companies no longer have the luxury of choosing between sustainability and ESG.
In South Africa, where challenges like energy and water shortages, economic downturns, high unemployment statistics and environmental risks are particularly acute, an integrated approach that incorporates the broad, holistic practices of sustainability with the detailed, specific metrics of ESG is essential.
A pragmatic approach is required too. While, for instance, international norms prescribe an immediate shift to net zero and the widespread adoption of renewable energy,
South Africa’s unique circumstances highlights that the country must balance such expectations against current economic realities.
South Africa’s pathway to sustainability may instead require a more gradual adoption of renewables, prioritising first the economic and social pillars of ESG by stabilising the economy and reducing unemployment. This would lay the foundation for a successful transition to renewable energy, meeting environmental goals in a way that supports the country’s long-term growth and development.
Global perspectives
Understanding the global perspectives on sustainability and ESG further emphasises why both are critical and how different regions approach these concepts.
The European Union (EU), for instance, employs a rigorous approach through the Corporate Sustainability Reporting Directive (CSRD), which mandates organisations to report on both their internal operations, as well as their upstream and downstream impacts.
The CSRD aims to enhance transparency and accountability in corporate sustainability practices, with the focus on circular economy principles, supply chain sustainability and the elimination of greenwashing. For companies operating in or trading with the EU, compliance is not just regulatory – it’s a strategic imperative to remain relevant and competitive.
In the United States (US), ESG is becoming increasingly mandatory and is being fuelled by investor demands for corporate transparency. While sustainability often becomes a political pawn, delaying action and diluting focus, new regulations such as California’s climate disclosure bill require companies to report detailed climate-related financial information, pushing for more stringent ESG practices.
China, in contrast, is steering a different course, shifting from an increasingly insufficient GDP-focused growth model to a Gross Ecosystem Product (GEP) development strategy, as highlighted in a 2023 report by the World Economic Forum (WEF).
The country’s track record in reinventing technology, products, and management approaches underscores its capacity for innovative growth. In just one generation, China has achieved remarkable social progress – extending life expectancy by 10 years, reducing infant mortality by 80%, and lifting more than 800 million people out of poverty.
While China’s journey has not always been driven by sustainability, the pivot towards a GEP development strategy reflects the country’s changing priorities, where economic progression is being aligned with environmental sustainability, resonating with the broader objectives of the United Nations’ Sustainable Development Goals, and paving the way for a slower yet potentially higher quality phase of growth.
The South African context
South Africa stands at a crossroads. As we navigate our economic and environmental challenges, there is much to learn from China’s experience.
In a global context where the US uses sustainability as a political tool and the EU risks overregulation, collaboration with China could offer valuable insights. By adapting elements of China’s nature-positive transition, South Africa may find a path to sustainable growth that addresses its unique needs and circumstances.
Our trade relationships with both the EU and the United States demand stringent compliance with sustainability standards, and by embracing both ESG and sustainability, South African companies can maintain their future relevance, resonate with investors, customers and regulatory bodies, mitigate risks and seize new opportunities in a rapidly evolving world.
Netcare, a leading South African private healthcare provider, is a good example of how a company can engage with both sustainability and ESG criteria within the context of its sector.
Netcare’s goal is to provide the best and safest care, with a firm belief that their approach to sustainability vests in the ethos that care for the wellbeing of people is inseparable from care for the wellbeing of society and the environment.
According to the group, this is a relationship that, in these fragile and fractious times, is moral, ethical and empirical. Netcare’s human, social and environmental strategies and initiatives are grounded in and referenced to local and global frameworks for social and environmental justice, with the goal of achieving a more peaceful, secure, equitable and sustainable world.
To support their sustainability strategy, Netcare’s ESG reporting is aligned with – amongst others – the Global Reporting Initiative, and focuses on the impacts of risks and opportunities, disclosing progress against their sustainability goals.
This includes factors such as energy and water efficiency, renewable energy, transitioning to a low carbon economy, waste reduction and circular economy principles.
Netcare also addresses risks like energy and water security, as well as equality, patient-centricity, entrenching information technology into their healthcare service offering, and futureproofing operations by investing in a pipeline of healthcare professionals for the future.
The group’s dedicated and balanced approach has benefited them with an impressive internal rate of return of 40% on investments made in their environmental sustainability strategy.
